First Impressions

A Derivative View
Today is a big day for the International Swaps and Derivatives Association (ISDA). This morning, CEO Bob Pickel released his final contribution to derivatiViews, ISDA’s blog on current events and topics of interest to the OTC derivatives community. Next week, Pickel hands the reins to Scott O’Malia, former CFTC commissioner.

Also released today is a statement from ISDA regarding the Argentina situation. In the release, ISDA said it will make its default judgment tomorrow (Friday, August 1), at 11am EDT. (See lead story below). It is a train wreck, to be sure, but one that has been happening in slow motion. The market is acting today as if this was not imminent. Strange.

Parting Thoughts
Robert Pickel – ISDA derivatiViews
Swaps and ISDA have played a central role in my professional career ever since the mid-1980s when I was with the law firm Cravath, Swaine & Moore, ISDA’s original outside counsel. As I leave this incredible organization and consider other opportunities, I wanted to share a few reflections from my various roles at ISDA.
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Quote of the Day

“We’re not going to sign any deal which compromises the future of Argentines.”

Argentina’s economic minister Axel Kicillof, as quoted in the NY Times article “In Hedge Fund, Argentina Finds Relentless Foe”

Lead Stories

ISDA to Rule If Argentina Credit-Default Swaps Triggered
Abigail Moses – Bloomberg
The International Swaps & Derivatives Association said its determinations committee will rule on whether credit-default swaps linked to Argentina have been triggered by a failure-to-pay credit event.
The committee will meet tomorrow at 11 a.m. in New York and a decision that an event has occurred would lead to payouts on all contracts, according to ISDA’s rules. A total of 2,652 contracts insuring a net $1 billion of Argentina’s debt were outstanding as of July 25, according to the Depository Trust & Clearing Corp.
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***JB: There are an abundance of stories on Argentina today. We have a few more at the end of the Lead Story section.

US banks braced for large deposit outflows
Tracy Alloway and Camilla Hall in New York – Financial Times
US banks are steeling themselves for the possibility of losing as much as $1tn in deposits as the Federal Reserve reverses its emergency economic policies and raises interest rates.
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***DA: Which is why it will be many years before rates are truly normalized. There will be many stops and false starts.

Why a French Bank Would Expand in U.S. High-Yield Bond Sales Now
Lisa Abramowicz – Bloomberg
The world’s biggest banks are pouncing on one of the only bright spots in their fixed-income businesses: helping junk-rated companies sell bonds.
Case in point is Credit Agricole SA (ACA), which is boosting its U.S. high-yield debt unit by hiring Michael Stiuso, Cindy Cash and Justin Brody in the last several months. The lender has risen to become 12th most-active manager of the debt sales this year, its highest rank ever, up from 17th place in 2013, according to data compiled by Bloomberg.
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Growth Rebound Stokes Fed Debate
Jon Hilsenrath, Eric Morath and Nick Timiraos – WSJ
Federal Reserve officials delivered a modestly more upbeat assessment of the economy Wednesday amid a second-quarter growth rebound and deepening debate inside the central bank about when to start raising interest rates.
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***DA: At least there is debate going on. That is progress.

Euro Bonds in Seven-Month Surge as ECB Boosts Italy to Germany
Anchalee Worrachate – Bloomberg
Euro-area government bonds were set for their longest monthly winning streak in nine years after weak data from retail sales to factory output signaled European Central Bank efforts to revive the economy are not yet finished.
Securities from Europe’s most-indebted nations to its highest-rated were headed for a gain in July as the region’s struggling economy spurred investor bets the ECB will add more stimulus. Reports today showing inflation in the currency bloc slowed to about a quarter of policy makers’ target and unemployment remained rooted near an all-time high bolstered speculation measures that tend to boost government bonds will be put in place.
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Pension investment giant urges schemes to cut corporate bond exposure
Stephanie Baxter – www.investmentweek.co.uk
Towers Watson, one of the UK’s largest pension fund investment consultancies, has issued a stark warning to clients urging them to consider reducing their exposure to corporate debt.
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Europe’s haven hopes for stormy high-yield
Andrew Bolger – Financial Times
With growing concerns that high-yield corporate bonds are overvalued, could Europe offer nervous investors some shelter from future market storms?
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Sub-Saharan Africa bond issuance booms
Laura Benitez – Reuters
Bond issuance volumes from sub-Saharan African have already surpassed last year’s levels with the promise of more to come. African issuance has dominated CEEMEA supply over the past month, with at least three more transactions possible over the coming next couple of weeks.
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London warned it risks falling behind in renminbi race
Philip Georgiadis – Financial News
The head of Asia Pacific at asset management trade association ICI Global has urged London to do more to cement itself as a key offshore renminbi trading hub, as global financial centres scramble to profit from the liberalisation of the Chinese currency.
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Argentina CDS Holders Face Likely Wait
Katy Burne – MoneyBeat – WSJ
Even if Argentina fails to make scheduled bond payments Wednesday, it could be days before investors who bet on a default using so-called credit default swaps will find out whether they can collect.
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***DA: ISDA meeting tomorrow. Top story above.

Argentina’s Default Clock Runs Out as Debt Talks Collapse
Katia Porzecanski, Camila Russo and Daniel Cancel – Bloomberg
With Standard & Poor’s saying Argentina is in default and last-minute plans to remedy the situation falling through, investor focus is turning to whether holders of $29 billion of bonds will demand immediate repayment.
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Argentine Bonds Sink After Default as Swaps Holders Seek Ruling
Katia Porzecanski – Bloomberg
Argentina’s dollar bonds fell after the country defaulted on its debt and holders of bond insurance contracts sought a ruling that they’re entitled to compensation.
While talks broke down between the government and creditors yesterday, Buenos Aires-based newspaper Ambito reported today that banks including Citigroup Inc. (C) have agreed to buy defaulted bonds from holders including Elliott Management Corp., paving the way for Argentina to resume paying its debt. Cabinet Chief Jorge Capitanich said in Buenos Aires that the government isn’t involved in talks with private parties.
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Argentina, default, and the prisoner’s dilemma
Joseph Cotterill – Financial Times
That was the Argentine economy minister, Axel Kicillof, shortly before pixel time, having announced a (rejected) ‘offer’ of the same terms as Argentina’s restructured debt to the holdouts; blamed Judge Griesa; and otherwise prepared his country for default. Direct negotiations, in short, are over for now.
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In Hedge Fund, Argentina Finds Relentless Foe
PETER EAVIS and ALEXANDRA STEVENSON – Dealbook – NY Times
The hedge fund firm of billionaire Paul E. Singer has about 300 employees, yet it has managed to force Argentina, a nation of 41 million people, into a position where it now has to contemplate a humbling surrender.
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Post-Argentine default calm will fade
Ralph Atkins in London – Financial Times
Argentina’s latest default is easy for financial markets to dismiss as an aberration. More than a Latin American accident is needed to upset the prevailing calm, engineered by a still-dovish US Federal Reserve. The nonchalance may, however, have reached a high-water mark.
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Central Banks

Federal Reserve: Another $10B Bite The Dust
Kitco news (via Forbes)
The Federal Open Market Committee remains optimistic that the U.S. economic recovery is gaining momentum as it shed another $10 billion from its monthly bond-purchase program Wednesday.
The Fed’s quantitative easing program is now at $25 billion a month. Starting in August, the Fed will buy $10 billion in mortgage-backed securities and $15 billion in long-term Treasury securities, according to a statement released after a two-day meeting of the Federal Open Market Committee.
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Yellen faces first dissenting voice as Fed tightening draws nearer
Dan Jones – www.investmentweek.co.uk
The US Federal Reserve has maintained the gradual tapering of its QE programme after a meeting which suggests some members are pushing harder for a more hawkish monetary policy.
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***DA: Plosser is the lone hawk.

BoE group points to risks in pensions herding
Sarah Krouse – Financial News
UK pension funds’ “tendency to herd” in and out of asset classes could contribute to market volatility and price swings during times of financial stress, according to the latest research into the issue of systemic risk outside the banking industry.
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Currencies

Euro Flows Reveal Shift in Sentiment as Losses Mount: Currencies
Rachel Evans and Andrea Wong – Bloomberg
The international appetite for euro-zone financial assets that underpinned the local currency the past two years is beginning to erode.
While broad data showing real-time flows into and out of the region’s stocks and bonds are hard to find, strategists point to items such as U.S. exchange-traded funds, which pulled $1.1 billion from European assets this month, the first outflow since April 2013. Bonds of Italy and Spain that yielded as much as 7.05 percentage points more than Treasuries two years ago now pay less than their U.S. counterparts, diminishing their appeal.
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Hungary: Banks count cost of FX loan legislation
Lucy Fitzgeorge-Parker – Euromoney Magazine
A slew of Hungarian banks issued profit warnings last month after the country’s parliament approved the latest round of legislation on foreign exchange and retail loans.
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Goldman Sees Yuan Trading in Korea Weakening Won Against Dollar
Jiyeun Lee – Bloomberg
A plan to start direct trading between the won and China’s yuan will hurt the South Korean currency by slowing the inflow of dollars, Goldman Sachs Group Inc. said in a report.
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Thomson Reuters to Calculate Currency Benchmarks for Three African Economies
Profit & Loss
Thomson Reuters has won a competitive process to provide currency benchmarks for three of Africa’s growing economies – Kenya, Ghana and Zambia
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Bitcoin Turns Digital Gold as Faith in Vietnam Dong Ebbs
John Boudreau and Mai Ngoc Chau – Bloomberg
Bui Huy Kien is ignoring the Vietnamese government’s warnings and accepting payment in bitcoin for advertisements on his website.
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ICE considers changing Liffe cocoa currency to euro-sources
Sarah McFarlane – Reuters
The Intercontinental Exchange is considering changing the currency of its sterling-denominated Liffe cocoa futures to euros, market participants said.
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Indexes & Index Products

Enhanced trading service for ETFs
SIX Swiss Exchange offers its participants an enhancement of its trading service based on an international structure. As of today, the ETF position can be transferred into Euroclear after settlement at SIX Securities Services. Position at SIX SIS Ltd can be arranged via the CBL or EB account of SIX SIS Ltd. The established access to clearing arrangements through SIX x-clear AG and LCH.Clearnet Ltd remains part of this offering.
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Women In ETFs Announces Board Of Directors And Leadership Team
First Women’s Organization For ETF Industry Founded In January 2014
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Gold

Gold ETPs Halt Outflows as Buyers Return Amid Price Slump
Debarati Roy – Bloomberg
Gold investors who pulled money out of U.S. exchange-traded products through the first half of 2014 rushed back in July, just as prices resumed a decline that Barclays Plc and Goldman Sachs Group Inc. say will get worse.
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Gold Drops as Declining U.S. Jobless Claims Cut Demand
Luzi Ann Javier – Bloomberg
Gold futures dropped to a six-week low after a government report showed improvement in the U.S. labor market, damping demand for a haven.
Fewer Americans filed applications for unemployment insurance benefits over the past month than at any time in more than eight years. Federal Reserve officials yesterday continued to pare monthly asset purchases, while repeating that they’re likely to keep interest rates low for a “considerable time” as they look for improvement in a “range” of labor indicators.
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Banks aim to have new Gold Fix operational by year-end
Xan Rice – Financial Times
The new gold benchmark that will replace the near century-old London Gold Fix should be operational by the end of the year, according to the banks that run the twice daily auction process.
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